Investing.com – Private equity investor Orlando Bravo is issuing a stark warning about the tech sector. “I think there’s more pain to come,” said Mr. Bravo, founder of buyout firm Thoma Bravo.
For years, the technology sector has dominated the stock market, with companies like Apple (NASDAQ:) and Microsoft (NASDAQ:) becoming among the most valuable companies in the world. But in 2022, tech stocks faced a challenge as central banks sought to rein in runaway inflation. The U.S. Federal Reserve on Wednesday made its most aggressive interest rate hike since 1994.
Higher rates make the future earnings of growth-oriented companies less attractive. Tech companies, especially venture-backed ones, tend to prioritize growth over short-term profitability. “When these companies really start to answer the question investors have about the path to profitability, they’re not going to like what they see,” Bravo said.
“It requires a lot of cost cutting, it requires a lot of pain,” he added. “And it’s difficult to execute, especially in a public setting.” Once-hot tech companies have seen their valuations reduced in both public and private markets lately, with companies that have benefited from the societal effects of the Covid-19 pandemic being hit harder than others.